JPMorgan Involved In Another Ponzi Scheme Allegation

JPMorgan Involved In Another Ponzi Scheme Allegation
Joe Mabel [CC BY-SA 3.0], via Wikimedia Commons

JPMorgan Chase & Co. (NYSE:JPM) is involved in fresh acquisitions it was aware of a ponzi scheme and didn’t take action to stop it, according to a lawsuit filed Thursday.

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The complaint, filed in Missouri federal court on behalf of those victimized in the scheme, says that from 2004 to 2009 William Wise advertised certificates of deposit online.  When savers would purchase the certificates, he deposited the money into a Washington Mutual (WaMu) account and then transfer large amounts of cash internationally, a money laundering red flag. The issue was first revealed in a Fortune Magazine article.

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Allegations bank was aware but did nothing to stop fraud

Wise bilked investors of anywhere from $68 million to $200 million, most of which took place when WaMu was an independent bank.  In the fall of 2008 JPMorgan took control of WaMu and, according to the lawsuit, JPMorgan became aware of Wise’s suspicious activity “but did nothing to stop it.”

Money laundering red flags: Former JPMorgan compliance manager says he was aware of suspicious activity

The lawsuit includes testimony from Casey Stein, a compliance manager at JPMorgan, who said he was aware by mid-February 2009 of suspicious activity going on in William Wise’s Washington Mutual account. “The unusual activity … involved rapid movement of funds and international wire transfers to countries with an increased risk of potential money laundering,” the report said. “Further, a large portion of the funds that were deposited into [Wise’s] account were being redistributed to Wise, [his employee] Hoegel, and their apparent relatives,” Stein testified in the complaint.

Stein’s statement accurately describes the fraud, yet it contradicts the timing described in JPMorgan’s investigative report of the issue.  The statement suggests that the bank may have been aware of the fraudulent activity as early as October 2008, according to the article.  It is unclear if obstruction of justice charges are being considered. The lawsuit was initially filed and dismissed, and this complaint is bringing in new information with regards to JPMorgan Chase & Co. (NYSE:JPM)’s knowledge of the issue and not reporting it.

Banks have significant anti-money laundering rules and smaller banks typically face strict fines and criminal charges if they are found to be laundering money.  Specific activities, such as transferring large amounts of money to overseas countries, typically trigger a compliance review at the bank.

The report noted that federal regulations require banks report to authorities “violations that require immediate attention” like money laundering schemes.  If it had followed legal and compliance regulations, the bank would have immediately contacted an appropriate law enforcement authority and the OCC by telephone, in addition to filing the sort of investigative report that was included in the complaint, the report said. The lawsuit alleges JPMorgan Chase & Co. (NYSE:JPM) never complied with this mandated process.  This claim is backed up by the fact that the SEC didn’t shut down the scheme until six months after the initial report was filed, it was noted.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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